Tài liệu The Global economic crisis challenGes for DevelopinG asia anD aDb’s response ppt

The Global economic crisis challenGes for DevelopinG asia anD aDb’s response April 2009... ADB – Asian Development Bank ADF – Asian Development Fund AIFI – Asian Infrastructure Financing

The Global economic crisis

challenGes for DevelopinG asia anD aDb’s response

April 2009

© 2009 Asian Development Bank

Every effort has been made to ensure the accuracy of the data used in this publication Variations in data in the Asian Development Bank (ADB) publications often result from different publication dates, although differences may also come from the sources and interpretation of data ADB accepts no responsibility for any consequence of their use.

The term “country,” as used in the context of ADB, refers to a member of ADB and does not imply any view on the part of ADB

as to the member’s sovereignty or independent status.

In this publication, $ refers to US dollars.

ADB – Asian Development Bank

ADF – Asian Development Fund

AIFI – Asian Infrastructure Financing Initiative

ASEAN – Association of Southeast Asian Nations

CGIM – credit guarantee and investment mechanism

DMC – developing member country

GDP – gross domestic product

OCR – ordinary capital resources

MDGs – Millennium Development Goals

PRC – People’s Republic of China

SAARC – South Asia Association for Regional Cooperation

SMEs – small and medium-sized enterprises

TFFP – Trade Finance Facilitation Program

NOTE

In this report, “$” refers to US dollars.

ADB Task Force on

Global Economic Crisis

Members

K Sakai, Strategy and Policy Department (Chair)

P Erquiaga, Private Sector Operations Department

S Hafeez Rahman, Pacific Department

X Yao, Regional and Sustainable Development Department

J W Lee, Office of Regional Economic Integration

M Kashiwagi, Treasury Department

A Quon, Department of External Relations

M Lamberte, Asian Development Bank Institute

Under the guidance of the Task Force, this report was prepared by a team led by Indu Bhushan and comprising Donghyun Park, Lei Lei Song, Armin Bauer, and Khaja Moinuddin Significant contributions and comments were provided by Jaseem Ahmed, Ian Anderson, Sharad Bhandari, Bruno Carrasco, Shiladitya Chatterjee, Jesus Felipe, Shigeko Hattori, Tatsuya Kanai, M Teresa Kho, Harinder Kohli, Noriko Ogawa, Jouko Sarvi, Ashok Sharma, Manju Senapaty, Ramesh Subramaniam, Craig Sugden, Myo Thant, V B Tulasidhar, and Jo Yamagata

Technical and administrative support was provided by Gina Marie S Umali, Aileen M Aguilar, and Ernalyn Lising Richard Vokey edited the report

Copy editing, typesetting, and design services were provided by Carolyn Dedolph Cabrera, Muriel S Ordoñez, Vicente

M Angeles, Edith Creus, Ma Priscila P Del Rosario, and Anthony H Victoria Printing of this report was done by the Printing Unit under the supervision of Alexander Tarnoff

This paper provides a brief overview of the evolving

economic crisis in developing Asia1 and the Asian

Development Bank’s (ADB) response Section II describes

the main drivers of the crisis in the region and the

major impacts on ADB’s developing member countries

(DMCs) The region’s crisis response, including actions

and reforms already initiated by DMCs, is discussed in

1 Developing Asia refers to ADB’s 44 developing member countries and to Brunei Darussalam, which is an unclassified regional

member.

Section III Section IV examines important policy issues the crisis has raised for developing Asia and summarizes the reforms DMCs should undertake to respond in the short run and to strengthen their resilience to external shocks in the longer term Section V presents ADB’s plan to help its DMCs restore sustained growth and social progress Section VI concludes the paper

The Crisis in Developing Asia:

Evolution and Impact

The global financial crisis presents developing Asia

with its most difficult economic challenges in recent

times Growth rates have fallen sharply and are projected

to drop further Unemployment, deprivation, and financial

and fiscal stress have increased and will likely worsen

Poverty reduction and other key development efforts

have been knocked off track As the economic fallout

from the financial crisis that began in the United States

(US) became worldwide, overall growth in developing

Asia tumbled from its impressive peak of 9.5% in 2007 to

6.3% in 2008 In 2009, the Asian Development Outlook

sees another steep fall to only 3.4% Because global

financial systems and major economies remain fragile,

the recovery could be long and marked by setbacks and

further shocks (ADB 2009, World Bank 2009a)

Today’s crisis is broader and deeper than the

Asian financial crisis of 1997–1998 It is also more

complex The Asian financial crisis arose from structural

weaknesses in financial and monetary systems at home

This time the damage has come from financial and

economic meltdowns in the advanced countries The

US subprime mortgage collapse, shattered confidence

in major global financial institutions and instruments,

massive deleveraging, crashing equity prices, and frozen

credit markets reversed credit and investment flows to

Asia, wounded Asian stock prices and exchange rates,

and interrupted a decade of record economic expansion

and social progress in developing Asia During the earlier

crisis, healthy growth and demand in the developed world

helped support Asia’s recovery This time, however, the US,

Japan, and Europe—the G3 countries—are in recession

and their business confidence and consumption, on which

the region has long depended, are in decline

For this reason, the crisis has hit export-dependent

DMCs the hardest Growth in East Asia overall declined

from 10.4% in 2007 to 6.6% in 2008 It is forecast to

shrink to 3.6% in 2009 This is despite the relatively

strong performance of the People’s Republic of China

(PRC) Growth in Southeast Asia was only 4.3% in

2008, compared with 6.4% in 2007 It may fall to below

1% in 2009 Only countries with limited external linkages

defied the Southeast Asian trend The economies of

South Asia, including India’s, were also relatively less affected They depend less on exports and their growth slowed moderately from 8.6% in 2007 to 6.8% in 2008, although it will likely decline again in 2009 Most of Central Asia’s DMCs have been harmed economically

by plunging prices for their vital commodity exports and

by the recession in the Russian Federation, their main trade and financial partner The subregion’s growth plummeted from 12% in 2007 to 5.7% in 2008, and will likely be only 3.9% in 2009 Against this bleak backdrop, the Pacific subregion’s growth of 5.1% in 2008 appears buoyant But the Pacific DMCs will start feeling the full impact of falling commodity prices and tourism receipts only in 2009 Figure 1 shows the fall in growth by subregion (ADB 2009)

Figure 1: GDP Growth Rates and Forecasts

of Developing Asia

0.7 3.9

5.1 4.3

6.6 5.7 6.3

6.2 8.5 9.1 11.6 8.6

3.0

4.8 3.6 3.4

6.8

2.9

The Pacific Southeast Asia South Asia East Asia Central Asia Developing Asia

%

2009 2008 2004-2007

Sources: ADB 2009, ADB staff estimates.

The Financial Sector: Banks Resilient But Stock Markets Not

The region’s banking sector is a bright spot in a dark economic picture Bolstered by reforms following the

Asian financial crisis, particularly in East and Southeast Asian countries, the banking sector has been remarkably resistant to global shocks and fears The region’s banks report only miniscule (0.09%) direct exposure

to subprime assets Consequently, Asia’s major banks

The Crisis in Developing Asia

have faced comparatively less pressure on their balance

sheets than the rest of the world’s (Figure 2) The

capital adequacy ratios of the banks in the region were

strengthened after the Asian financial crisis and lending

continues to flow more or less normally to the real sector

Overall, interbank interest rates fell in early 2009 from

their peak near the end of 2008 But anecdotal evidence

suggests that, in their effort to shore up capital adequacy,

banks are turning down riskier borrowers, including

small and medium-sized enterprises (SMEs) This “flight

to quality” could deter innovation Overall, however, the

region has so far been spared the severe credit crunch

that has gripped the US and Europe (Adams 2008)

Figure 2: Crisis Write-Downs and Capital

Raised by Major Banks

($ billions since 1 October 2007)

Note: Data as of 3 April 2009.

Source: Bloomberg.

Stock markets have fallen dramatically as foreign

capital has fled This deprives DMC economies of a

crucial source of external financing A protracted slump

could effectively raise the cost of capital, dampen

business and consumer confidence, and reduce financial

wealth (Figure 3)

The longer or deeper the crisis becomes, the greater

the risks to the region’s finance sector Banks may

become vulnerable if a prolonged slowdown cuts

earnings further and growing corporate and individual

bankruptcies force them to set aside more funds for

losses and nonperforming loans A delayed or disorderly

resolution of the credit crisis in the developed countries

could also undermine financial stability in developing

Asia by further shaking investor confidence in financial

systems and instruments

Trade: Main Pathway to Crisis in the Region

The global crisis struck developing Asia most forcefully through the collapse in trade and in business and consumer confidence in the G3 As import demand

faded in the advanced economies and their recessions set in, export growth plunged in East and Southeast Asia and South Asia It was down by about 30% and 10%, respectively, in the two subregions in January 2009 compared with the last quarter of 2008 Electronics exports, closely tied to world income levels, have been particularly hurt, badly weakening export performance in the Republic of Korea; Malaysia; Philippines; Singapore;

and Taipei,China Bangladesh, Cambodia, Indonesia, and Sri Lanka have also suffered as the consumption in G3 markets of their major, labor-intensive export goods like textiles, toys, and footwear has withered A comparison

of recent trade performance between subregions is presented in Figure 4

Weakening consumption and investments at home have compounded these imported problems Lost

export revenues have crimped income and cast a cloud over investment in export manufacturing Import growth has followed suit The gloomy global outlook has sapped

business confidence across developing Asia

Dropping commodity prices have punished exporting DMCs but helped low-income consumers As

commodity exporters, Indonesia, Papua New Guinea, Timor-Leste, Thailand, Viet Nam, and Malaysia stand

to lose significantly In 2009, for example, exports are projected to decline by 25% in Indonesia, 13% in Malaysia, 18% in Thailand, and 32% in Viet Nam (ADB 2009) The

Jul 08 Jan 09 0

50 100 150 200

US Dow Jones Developing Asia

1 Jan 2006 = 100

Jan 08 Jul 07 Jan 07 Jul 06 Jan 06

Figure 3: Equity Prices

Source: ADB 2009.

The Global

-40 -20 0 20 40

07 Apr- 07 Jun- 07 Aug- 07 Oct- 07 Dec- 07 Feb- 08 Apr- 08 Jun- 08 Aug- 08 Oct- 08 Dec- 08 China, People's Rep of Hong Kong, China Korea, Rep of Taipei,China

Feb-East Asia

-60 -20 20 60 100 140

Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08

Armenia Tajikistan Uzbekistan

Central Asia

-30 -10 10 30 50

07 Apr- 07 Jun- 07 Aug- 07 Oct- 07 Dec- 07 Feb- 08 Apr- 08 Jun- 08 Aug- 08 Oct- 08 Dec- 08 Malaysia Philippines Singapore Thailand India Indonesia

Feb-South and Feb-Southeast Asia

-40 -20 0 20 40 60

Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08

Papua New Guinea Samoa Solomon Islands Tonga

The Pacific

Export Growth (%)

-50 -30 -10 10 30 50

07 Apr- 07 Jun- 07 Aug- 07 Oct- 07 Dec- 07 Feb- 08 Apr- 08 Jun- 08 Aug- 08 Oct- 08 Dec- 08 China, People's Rep of Hong Kong, China Korea, Rep of Taipei,China

Feb-East Asia

-20 0 20 40 60 80

Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08

Armenia Tajikistan Uzbekistan

Central Asia

-30 -15 0 15 30 45 60

Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08

Malaysia Philippines Singapore Thailand India Indonesia

South and Southeast Asia

-20 0 20 40

Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Papua New Guinea Samoa Solomon Islands Tonga

The Pacific

Import Growth (%)

Note: Growth rates refer to 3-month moving average

Sources: CEIC Data Company, Ltd database and International Monetary Fund, International Financial Statistics.

The Crisis in Developing Asia

downturn also hits farmers in food-exporting countries,

such as Thailand and Viet Nam, and government revenues

in oil-exporting DMCs, such as Kazakhstan and Malaysia

However, lower food and oil prices slow inflation and

increase the purchasing power of the poor

Capital Flows: A Receding Tide

External financing, a key driver of economic expansion

in the DMCs, has been cut back radically Developed

world investors have withdrawn funds to repair balance

sheets at home The slump in net private flows for

both direct and portfolio investment will continue

in 2009, according to the Institute of International

Finance (Figure 5) The region is also experiencing a

precipitous drop in foreign direct investment, which has deprived it of both finances and new technology (Figure 6) This is a grave problem for countries that have low reserves, like Pakistan, and those that rely on external borrowing to help fund their budget deficits, such as the Philippines and Indonesia The worldwide flight from financial assets has hiked the risk premium

on the dollar-denominated offshore bonds of the DMCs and set back their efforts to finance capital-intensive projects externally (Figure 5) ADB’s experience with private sector operations shows that funding for infrastructure projects is fast drying up Fortunately, domestic capital markets, which still supply the bulk of bond financing in the region, have not yet been affected

by the tightened US bond market conditions Official aid flows also remain unchanged

Figure 5: Developing Asia—External Finance

Falls and Borrowing Costs Rise

reserves, less errors and omissions.

Malaysia, Philippines, and Thailand

Note: The bond spreads are based on JP Morgan’s Emerging Markets Bond Index for

sovereign bonds

Sources: Bloomberg and Institute of International Finance.

Figure 6: Foreign Direct Investments in

Selected DMCs

(% change in $ value)

Note: Changes are calculated on year-on-year basis using quarterly data.

Source: ADB staff estimates.

31.5 125.8

3.6

-9.6

5.7 11.8

-41.5

2.1

-8.9 -26.2

-38.2 -22.9

-2.6

-60 -20 20 60 100 140

People’s Republic of China Indonesia Korea, Rep of Philippines Viet Nam

-250 250 750 1250

Indonesia Pakistan Philippines Viet Nam

Jan06 Jul Jan07 Jul Jan08 Jul Jan09

Net Equity Investment, Emerging Asia2

External Financing1, Emerging Asia 2

External Financing, Net Equity Investment, Bn USD Bond Spreads, bps

Declines or slower growth in remittances are damaging

economies dependent on their overseas workers—

and will likely continue to do so Remittances play

key roles in capital formation and household survival

strategies in much of the region, including India, PRC,

Philippines, Bangladesh, and Pakistan, which are 5 of the

top 10 remittance recipients in the world Remittances

constituted more than 45% of Tajikistan’s GDP in 2007

and are crucial to Nepal South Asia, where remittances

grew by almost 27% in 2008, faces a fall of 4%–7% this

year Remittances from overseas Filipinos are expected

to grow by only 6%–9%, compared with 10%–14% in

2008 The steep declines of 2008 (Figure 7) in most

of these countries are likely to continue well into 2009

(ADB 2008c, World Bank 2009)

The region’s currencies have depreciated against the US dollar due to weakened payments balances

Eroding exports and remittances and portfolio outflows are mainly to blame These have limited gains from falling commodity prices in importing countries and partially offset the potential losses of commodity exporters In principle, currency depreciation favors exports but weak global demand has so far generally neutralized this potential advantage

The Global

Economic Crisis

-14.6

5.3 12.6

19.6 -14.3

-12.6 -4.3

-2.6 -11.1 -10.6 -35.8

-18.5

Viet Nam Thailand Philippines Myanmar Malaysia Lao People’s Democratic Republic

Japan Indonesia India Hong Kong, China People’s Republic of China Cambodia

Figure 7: Change in Remittance Inflows

(%)

Notes: (i) Workers’ remittances include migrant transfers (ii) Comparison is between 2008 and 2007 data; 2008 data are estimates.

Source: World Bank.

Figure 8: Changes in Poverty and Vulnerability in Asia

2005 (Actuals) 2010 (Without Crisis) 2010 ( With Crisis)

0% 6% 12% 18% 24% 30% 36% 42% 48% 54% 60%

Source: Hasan et al 2009.

Social Impact: Increasing Vulnerabilities

Slowing growth is destroying jobs and driving down wages, consumption, and welfare of DMC households

Unemployment is up substantially in manufacturing, construction, and services, the sectors greatly exposed

to thinning demand abroad and at home The International Labour Organization (ILO) has warned that this recession may add more than 30 million people to the rolls of the unemployed by the end of 2009 (ILO 2009) This estimate could prove conservative since it may not fully capture the trickle-down impacts through the value chain on downstream industries and services, where job losses more directly affect the extreme poor Over 20 million workers are reported to have lost their jobs in the PRC alone Unemployment has also risen markedly in Hong Kong, China; India; Republic of Korea; and Taipei,China

New jobs often require hard-to-get skills and many job seekers stay unemployed Those who are successful frequently work for less pay or under poor conditions

in the informal labor market Recent retail sales data confirm that falling employment, incomes, and wealth are further dampening consumption

Developing Asia’s impressive record in poverty reduction is likely to falter The region’s strong

performance has been powered by high growth over long

periods Now large numbers of newly jobless workers from the region’s struggling export industries and laid-off migrant and overseas employees are at risk of descending into absolute poverty The lost opportunity cost is high as well An ADB study estimates that more than 60 million individuals who would have been lifted above the extreme income poverty line of $1.25 per day had the region’s high growth continued in 2009 will remain mired in poverty instead The figure could reach nearly 100 million

by the end of 2010 If the impact on the vulnerable (those earning less than $2 per day) is considered, the number

of affected people will rise to 80 million in 2009 and

130 million by 2010 (Figure 8)

Women workers are likely to suffer the most as the crisis decimates their jobs and makes them more vulnerable Women dominate the low end of global

supply chains in labor-intensive, export-oriented sectors,

as well as tourism Women employees outnumber men

by between two and five to one in the garment, textile,

and electronics industries in Thailand, Philippines, and

Viet Nam (ILO 2009a) When layoffs start, they are often the first to lose their jobs Women also form a large and particularly vulnerable group within the overall body of millions of overseas workers who have lost their jobs and are subject to exploitation and harsh conditions when seeking new ones

The Crisis in Developing Asia

The crisis is likely to increase child mortality, aggravate

hunger and disease, and increase school dropout

rates and the odds against attaining the Millennium

Development Goals (MDGs) Fifteen DMCs had fallen

seriously behind on the child mortality MDG even before

the crisis Thirteen countries had high or very high

maternal mortality rates Twice as many children were

underweight in South Asia than in sub-Saharan Africa

and Latin America combined Diarrheal diseases were

the leading killer of children in the region and nearly 2

billion people lacked access to adequate sanitation

These problems will probably worsen Declining

household incomes will force more students to abandon

Figure 9: Link between Growth and MDGs in Asia: Elasticities with Respect to Growth

0.109 0.056 0.054 0.049 0.023 -0.304

-0.430 -0.482 -0.483 -0.781

-0.858

GPI in tertiary level enrollment

GPI in secondary level enrollment

Net enrollment ratio in primary education

Primary completion rate

GPI in primary level enrollment

Maternal mortality rate per 100,000 live births

Under-5 mortality rate per 1,000 live births

Infant mortality rate (0-1) per 1,000 live births

Population undernourised

Poverty gap ratio

Population below $1 a day

Note: GPI refers to gender parity improvement in education (the ratio of girls to boys).

Source: UNESCAP-UNDP-ADB 2008

their education Experience from earlier crises shows that the children who drop out of school during these times may never return A recent ADB-supported study

in 25 DMCs (UNESCAP-UNDP-ADB 2008) suggests that economic growth directly affects movement on the MDGs and on the goals related to nutrition and health

in particular (Figure 9) If these relationships hold, a 3 percentage point drop in the region’s GDP growth rate in

2009 will translate into 10 million more undernourished people; 56,000 more deaths of children under 5 years;

and 2,000 more mothers dying at childbirth It also translates into an additional 1-year delay in achieving MDG targets relating to infant mortality and hunger

The Response of Developing Asia: Rising to the Challenge

Individual DMC responses have ranged from strong

to inadequate, depending on how and when the crisis

reached them, the nature and intensity of its effects,

and their ability to fight back East and Southeast Asian

governments and central banks moved quickly to expand

local demand, spur job creation, and stabilize financial

markets, easing monetary policy and implementing

large fiscal policy initiatives DMCs in other subregions

have lacked either the need or the fiscal resources to

act with the same speed or force Some countries in the

region, particularly those in South Asia, delayed reacting

on the assumption that their economies’ weak linkages

with the US financial system would help protect them

from the global storm But when the financial turmoil

expanded to the real G3 economies and then, through

global integration, spread to their own, they began to

respond (ADB 2008c) Table 1 compares fiscal, financial,

and monetary measures taken by selected countries in

developing Asia Box 1 provides an overview of the crisis

responses in the PRC and India, the region’s two major

developing economies

In most countries, the first step was to safeguard

banking and financial systems, although the speed

and intensity of interventions have varied Several

governments increased deposit insurance coverage and

issued blanket guarantees on the liabilities of

deposit-taking institutions This helped head off panic and the

potential for bank runs amid global uncertainty and the

failure of major US investment banks By strengthening

cooperation mechanisms in developing Asia, including

the Chiang Mai Initiative,2 the PRC, Japan, and Republic

of Korea helped shore up public confidence in the safety

of the region’s savings If the crisis deepens, more such

measures will be needed

The balance of risk in most of the region has shifted since mid-September 2008 from rising inflation to slowing growth Central banks in most countries have

acted to increase liquidity and ease credit and monetary policy Policy rates and reserve requirement ratios have come down in most DMCs (Figure 10) Governments have also adjusted regulatory guidelines, guaranteed deposits, injected liquidity, and intervened to smooth volatility in foreign exchange markets To support flagging stock prices, some state-owned enterprises increased their shareholdings in publicly traded companies These measures, coupled with their sound financial systems, have helped ensure adequate liquidity and kept interbank rates low and stable in most countries

2 The Chiang Mai Initiative is a collaboration to create a network of bilateral swap arrangements among ASEAN+3 countries It was agreed upon after the 1997–1998 Asian financial crisis to manage short-term liquidity problems In February 2009, ASEAN+3 agreed

to increase the fund to $120 billion from the $80 billion proposed in 2008.

Viet Nam India Korea, Rep of Hong Kong, China Taipei,China Thailand PRC Indonesia Malaysia Philippines Kazakhstan Sri Lanka Pakistan

Basis points

Figure 10: Change in Policy Rates

30 September 2008–16 March 2009

PRC = People’s Republic of China

Sources: Bloomberg; CEIC Data Company, Ltd., downloaded 17 March 2009.

The Response of Developing Asia: Rising to the Challenge

Hong K ong,

China Indonesia

Korea, Rep.

of

Lao PDR

Malaysia Mongolia Philippines Singapore Taipei,China Thailand Viet Nam Bangladesh India Pakistan

Sri L anka

Armenia Azerbaijan Georgia Kazakhstan

Kyrgyz Rep.

Tajikistan Uzbekistan Fiji Islands

Papua New

Guinea Samoa Vanuatu